Foreign banks may act as FDI vehicle – BSP

The new law liberalizing foreign ownership of local banks is expected to attract more foreign direct investment into the Philippines and raise the quality of banking practices in the country, the central bank said.

On Friday, the Monetary Board issued the implementing rules and regulations (IRR) of Republic Act (RA) 10641, or the Act Allowing the Full Entry of Foreign Banks in the Philippines, signed in July 2014 to replace the old RA 7721.

According to the Bangko Sentral ng Pilipinas (BSP), the new law allows foreign banks to acquire up to 100 percent of the voting stock of an existing domestic bank, after it removed the previous 60 percent limit on foreign equity in local banks.

Foreign banks may now apply to operate in the Philippines either as a branch or as a wholly owned subsidiary.

“Implementing the new law comes at an opportune time because the foreign banks can be vehicles for foreign direct investments into the Philippines at a time when we have attained investment-grade rating while also preparing further for regional integration,” BSP Governor Amando Tetangco Jr. said in a statement issued over the weekend.

Reputable and sound
The IRR also reflects the enhancements in the entry criteria prescribed by the new law, which states that instead of a bank’s ranking by size either globally or in its own jurisdiction, the new law focuses on the demonstrated expertise of a potential entrant as an established, reputable and financially sound bank.

The central bank said the Monetary Board shall also consider strategic relationships and reciprocity rights in accepting the application of a foreign bank entrant. In addition, foreign banks interested in entering the Philippines under RA 10641 are required to be widely owned and publicly listed in their home country.

Recognizing the added economic contributions by foreign banks, RA 10641 allows foreign banks to control up to a combined 40 percent of the total assets of the banking system. This is 10 percentage points higher than the previous 30 percent limit, the BSP said.

The central bank also mentioned that with the expected increase in the share of total assets under the management of foreign banks, the IRR reflects the authority of the Monetary Board to adopt necessary measures to ensure that the 60 percent domestic-controlled proportion is preserved.

Such measures shall consider vested rights and non-impairment of contracts that will be non-discriminatory to existing foreign banks, it said.

Capital requirements aligned
On the other hand, the BSP said that the minimum capital requirements applicable to foreign bank branches have been aligned with that of domestic banks of the same category.

Foreign banks entering the local financial industry under the new law are required to comply outright with the new capital requirements, as well as with the prescribed minimum capital ratios.

“We are very appreciative of the efforts of our legislators to pass into law RA 10641 and the BSP is quite happy to now issue the IRR to execute this law,” Tetangco said.

Meanwhile, the central bank stressed that similar to the provisions under Republic RA 10574, foreign banks are also allowed to bid and take part in foreclosure sales of real property mortgaged to them.

“Foreign banks can avail of any of the three modes of entry into the Philippines. At any time, however, they must only avail of one mode of entry subject to compliance with all the requirements,” the BSP concluded.